EXECUTIVE SUMMARY
WINNING THE TALENT WAR
ON THE HOME FRONT
A GUIDE TO RETAINING TALENT
USING REWARDS AND RECOGNITION
In his book, War Memoirs, former British Prime Minister Lloyd George opined, “the home
front is always underrated by generals in the field. And yet that is where the Great War was
won and lost. The Russian, Bulgarian, Austrian and German home fronts fell to pieces before
their armies collapsed.”
While he was talking about World War I, business leaders should heed his timeless advice
when it comes to the talent wars they face. Talent wars will intensify, according to the Bureau
of Labor Statistics. Scholars predict that talent shortages are going to increase well into the
next decade, limiting the ability of companies to expand and even jeopardizing their chances
of survival as global competition intensifies drastically (e.g., Coombs, 2012; Gordon, 2009;
Krell, 2011).
A litany of trends are conspiring to create these long-term shortages: Baby Boomers retiring;
slower population growth; increasing job specialization and technical demands; Millennials
and Gen Y not getting the education and experience to advance into more demanding jobs;
and increased global competition for talent.
Finally, even when there are high unemployment rates, key talent is always in demand and an
improving economy will exacerbate the challenge of retaining the most capable employees
who have unique or critical skills.
WINNING HEARTS AND MINDS
Winning the hearts and minds of your existing employee base is the foundation of true competitive advantage in the marketplace. Increasing engagement in the workplace not only correlates with higher revenue and profits, but it also lowers turnover rates.
In other words, holding onto your talent is a critical issue and deserves to be continually
examined and managed as a priority. Rewards and recognition are critical tools in accomplishing that goal.
THE ACUTELY HIGH COST OF TURNOVER
We know that losing employees is painful, and we also know it is immensely expensive.
Depending on the job level in question, turnover is generally estimated to cost between
50%-200% of an annual salary. So to consider the total costs to the company, let’s look at a
medium size company with 10,000 employees, an assumed 11% turnover, and a conservative
estimate of 75% of a year’s salary being the typical cost to replace an employee:
Average Annual
Salaries
Company with
10,000 Employees
70%
20%
10%
Entry
Level
Midmgmt
Senior
mgmt
Cost to Replace
(@75% of salary)
Annual Loss of Talent
(@11% turnover)
$22.5K
770
$30K
people
$17.3MM
$52.5K
220
$70K
people
$11.6MM
$112.5K
110
$150K
people
$12.4MM
$41.3MM
in bottom line turnover costs
Winning the Talent War on the Home front // 2
Even though unemployment is still relatively high in many parts of the world, many developed economies are already experiencing talent shortages in a number of labor markets.
And in the U.S., the Bureau of Labor Statistics (BLS) reports that voluntary terminations are
growing. The rate of unemployment for people with college degrees is about half the national
unemployment rate, and it continues to decrease. Employers report they are finding it difficult to fill engineering, highly skilled technical, managerial, executive, skilled trades and sales
representative positions (Bureau of Labor Statistics, 2012).
Retention of key talent has become
more difficult in recent months
I expect turnover of key talent to increase
substantially when the economy improves
Employee retention of key talent is a major
concern of senior management right now
Turnover of key employees is very
costly for our organization
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
Percent Agree
What can HR do to better retain employees and reduce turnover expense? The
answer is not complicated: focus on measuring, understanding and improving employee
engagement.
TAKEAWAY
Make the business case for engaging and retaining employees: Leaders are increasingly
focused on employee engagement and retention, which reflects a growing understanding of
the link between engaged employees and business results. Thus, the new focus of engagement initiatives is not simply about making employees happier, but on creating the conditions that encourage high levels of discretionary effort to benefit the organization, while
simultaneously reducing costly turnover.
UNCOVERING KEY EMPLOYEE MOTIVATORS
How do you draw up a strategy to engage, empower and retain your employees, in order to
win the war for talent on the home front? First, it’s critical to understand what will motivate
your employees to stay with your organization over the long haul. In an era of diminished
loyalties between companies and employees, this is a tall hurdle.
Winning the Talent War on the Home front // 3
In a recent survey conducted by Hay Group, WorldatWork and Dr. Dow Scott at Loyola University of Chicago with approximately 700 WorldatWork members, the extent of the retention
problem is glaringly evident.
Total Percent Favorable
Employees planning
to stay for > 2 years
Employees planning
to leave within 2 years
Gap (%)
Confidence in ability to achieve career
objectives at company
64%
31%
33%
Trust and confidence in company senior
management
60%
35%
25%
Opportunities for learning and
development
71%
45%
25%
Benefits that meet employee needs
68%
45%
23%
Company demonstrates care and concern
for employees
62%
39%
23%
Company is effectively managed and well
run
73%
51%
23%
Adequate authority to do job
73%
51%
23%
Employees paid fairly for the work they do
53%
31%
22%
Supervisory coaching for development
67%
45%
22%
Support for employee creativity and
innovation
70%
48%
22%
Cross-work unit collaboration and support
63%
41%
22%
Direction and goals are the right ones for
the company
73%
51%
22%
TAKEAWAY
Connect people with the future: Sustained engagement and commitment stems from building positive attitudes about the present realities of the organization and ensuring that people
have positive views of their futures at the company. Focus on creating opportunities for employee development. If employees are not expanding their capabilities, they risk compromising their employability within their current organizations and elsewhere. As these results
demonstrate, corporate and individual growth and development are among the strongest
predictors of employee engagement.
Winning the Talent War on the Home front // 4
Hay Group has examined this problem using its global employee opinion database of over
4 million employee records, isolating employees who indicated that they are committed to
staying with their companies for more than two years and comparing them with employees reporting intentions to leave their organizations within the next two years. The analysis
indicates clear predictors for employee retention. The work environment factors that were
most important to employees planning to stay with their organization for two or more years
are noted below:
At the same time, results from the Globoforce Spring 2012 Employee Mood Tracker survey
of approximately 700 full-time workers in the US also reveal how critical it is for employees
to feel that they are recognized and appreciated for their contributions at work. In fact, those
who don’t feel appreciated at work are 300% more likely to search for a job.
Survey Question: Do You Plan to Search For a New Job in 2012?
of those who feel appreciated
20%
of those who do not feel appreciated
60%
And frequency of recognition also is strongly correlated with employees’ desire to look elsewhere for work. In fact, the Employee Mood Tracker survey reveals a demonstrable correlation between when employees were last recognized and whether they plan to search for a
Would you work harder if your efforts
job this year.
were better recognized and appreciated?
Would you work harder if your efforts
were better recognized and appreciated?
Do you plan to search for a new job in 2012?
55%
40%
78%Yes
78%
37%
Yes
23%
No
No
22%
22%
Last 2 Years
Last Year
6 Months
3 Months
22%
Within
a Month
Last Recognized
One key thing organizations can do is implement a company-wide strategic recognition program. One of Globoforce’s clients, Quintiles, was concerned about its retention rates and
made the decision to implement a centralized, global recognition program. In just over a
year, retention rates had increased by 13 percent.
Not only are recognized and appreciated employees more likely to stay, they are for more
likely to be engaged and productive. The Mood Tracker survey results below bear this out.
TAKEAWAY
Make strategic recognition part of your management operating system: Employees want to
feel connected not only to the success of your company but to the values of your company.
Employees also have the fundamental craving to be recognized for their contributions. Creating a strategic recognition program that rewards employees for their contributions while
continually reinforcing corporate values creates a workforce that is aligned with company
objectives.
Winning the Talent War on the Home front // 5
APPRECIATION IS A FUNDAMENTAL EMPLOYEE REQUIREMENT
41%
Base Salary level
42%
Base Salary increase
48%
Benefits and perquisites programs
54%
Short-term incentives/bonus programs
32%
Long-term incentives/bonus programs
0%
10%
20%
30%
40%
50%
60%
% agree high impact on engagement
TAKEAWAY
55%
Create a strong
but fair pay-for-performance culture: Clearly, pay matters and perceived pay
fairness matters. Create a compensation
40%strategy that rewards people in a way that makes
sense and is perceived as fair. Identify your most valuable employees and compensate them
37%overpay those who don’t deserve it. Fairness cuts both ways
accordingly. Conversely, don’t
and your best employees will respect that.
23%
IT’S NOT ALL ABOUT THE MONEY
Non-financial rewards generally have a much greater impact on employee engagement than
do financial rewards. Note that the reward professionals who responded to the study recognized that most non-financial rewards (see chart below) have a higher impact on employee
engagement than the most financial rewards (see chart above). Career development opportunities, organization climate and the nature of the work itself all have significant impact on
engagement.
69%
The nature of the job/quality of work
61%
Work environment/climate
59%
Career development opportunities
55%
Work-life balance
0%
10%
20%
30%
40%
50%
60%
70%
% agree high impact on engagement
TAKEAWAY
Go beyond financial rewards to a total rewards mindset: Smart leaders understand that rewards go far beyond compensation and benefits and build the core organization messages
(i.e., an employment value proposition) around what is meant by total rewards. Develop tools
for managers so they can effectively reward employees beyond the confines of compensation
and benefits and develop and reinforce communications around total rewards.
Winning the Talent War on the Home front // 6
A recent Hay Group, WorldatWork and Dr. Dow Scott at Loyola University Chicago study assessed the impact of rewards on employee engagement and retention in the eyes of senior
reward professionals. In terms of financial rewards, short-term incentives/bonuses and benefits have the highest impact on employee engagement and retention.
Creating engagement and bolstering retention involves striking a new employment bargain
with employees. Employees are expected to invest more effort into their work and deliver
superior performance. To earn that effort and ongoing commitment to the organization,
companies must thoughtfully and intentionally create the conditions that make work more
meaningful and rewarding – financially, intellectually and emotionally.
As discussed in this paper, the blueprint for creating those conditions includes the following:
* Make a business case for engaging and retaining employees
* Connect people with the future
* Make strategic recognition part of your management operating system
* Create a strong but fair pay for performance culture
* Go beyond financial rewards to a total rewards mindset
Tending to the needs of the home front is the first step toward winning the war on talent.
Learn more about how
recognition can help you
win on the home front.
Hay Group (Worldwide Headquarters)
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Philadelphia, PA 19107 USA
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f // +1 215 861 2111
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Dublin 12, Ireland
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e // [email protected]
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Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent,
organize people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping
people and organizations realize their potential. We have over 2600 employees working in 85 offices in 47 countries.Our clients are
from the private, public and not-for-profit sectors, across every major industry. For more information please contact your local office
through www.haygroup.com
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Founded in 1999, Globoforce is the world’s leading provider of SaaS-based employee recognition solutions. Through its social, mobile, and global technology, Globoforce helps HR and business leaders
elevate employee engagement, increase employee retention, manage company culture and discover
the power of real-time performance management. Today, employees across the world are living their
company values and achieving peak performance through the Globoforce platform. A private corporation, Globoforce is co-headquartered in Southborough, Massachusetts, and Dublin, Ireland. To learn
more, please visit www.globoforce.com or the company’s blog at www.globoforce.com/globoblog.
© 2012 Globoforce Limited and Hay Group. All rights reserved.
Winning the Talent War on the Home front // 7
CONCLUSION